Rethink Scottish tax rates to drive economic growth

This includes Scottish income tax rates which, for higher earners, are the highest in the UK. An employee earning £50,000 in Scotland will pay approximately £1,500 more in income tax during 2026-27 than their counterparts in England and Northern Ireland.

Meanwhile Land and Buildings Transaction Tax (LBTT) levels are also impacting higher earners in Scotland. A Scottish homeowner would pay over £18K in LBTT on the purchase of a £450,000 residential property compared with a £12.5K Stamp Duty Land Tax bill for the equivalent transaction south of the border.

The Scottish Government claims more than 60 per cent of households are better off or unaffected under its income tax rate system, which is focused on benefiting lower-income households. It also points to a more generous nil-rate threshold to help first-time property buyers here.

The burden of these differential tax rates, being carried by Scottish higher earners, does however present a threat to our nation’s economic growth potential. Many of the business owners who I advise express private concerns about how such measures are making Scotland less competitive by disincentivising entrepreneurship and creating recruitment difficulties for scalable businesses.

To maximise Scotland’s economic potential through its devolved tax system, a new approach is required if we are to suitably address these challenges. Rather than imposing higher taxes that discourage talented professionals and wealth creators from investing here, we could instead look at examples of creative tax incentives being used across Europe that are designed to drive economic growth.

Spain has adopted this thinking through its 24 per cent flat tax rate charged on any income up to €600,000 earned by incoming investors and employees for the first six years.

The Dutch government is also incentivising talented workers into the Netherlands by allowing its companies to pay 30 per cent of an employee’s gross salary tax-free. This policy acts as a tax-free allowance to cover the costs of relocating and living abroad. By bolstering the level of take-home pay, it’s also making the Netherlands incredibly competitive in attracting technology and engineering talent.

Meanwhile, Ireland continues to utilise creative tax policies to further grow its economy. Through a range of key measures including a low corporate tax rate and a tax relief programme which encourages top-tier executives and specialists to locate to Ireland, the country has become a hub for global technology and pharmaceutical companies.

With other nations including Italy, Portugal and Greece also altering their tax policies to attract wealth, Scotland risks being left behind the rest of Europe including its UK neighbours where tax rates are currently more favourable towards higher earners.

If we are committed to genuinely supporting entrepreneurs and driving forward economic growth, Scotland’s tax policy must be shaped around such objectives. If we want to be at the forefront of renewable energy, life sciences or technology, we need to incentivise businesses and the talented employees they require to achieve their full potential.

This will require cooperation between the Scottish Government and its UK counterparts in designing a tax system that can attract and retain talent for the medium to longer term. The focus needs to be firmly on providing incentives that encourage rather than repel the skilled people we require, especially across core industry sectors.

By adopting this approach, we can address the current tax disincentive between Scotland and the rest of the UK and ultimately increase the overall tax base by enhancing our economic competitiveness.

Retaining businesses and attracting talent will ensure that more wealth can remain in Scotland and that will benefit the least well-off in our society.

Michael Jamieson is a personal tax director at accountants CT